Britain Should Follow French Lead on Childcare Reform… mdi-fullscreen

Jeremy Hunt was obviously chuffed with the childcare reforms in today’s budget: £600 incentives for new childminders, 30 hours of free childcare for every child over the age of 9 months by 2025, subsidised childcare for those on Universal Credit paid upfront. A lot of demand-inducing tinkering. Unless you are a foster carer, in which case the tax free allowance has gone up to £18,000 – tax-efficient parents should swap their kids with the neighbours’…

Guido would suggest borrowing from our esteemed European neighbours. As Madeline Grant points out, in France, parents of two children only hit the top tax bracket when household income reaches €250,000, while the childless hit it at under €100,000. French family taxation is based on the number of adults and children within the household, rather than on the parents individually. Policy Exchange say that “at an annual income of £30,000, a UK household currently pays £3,250 in tax with an actual tax rate (ATR) of 11%. Under the French principle of quotient familial, that same household would pay no tax (an ATR of 0%)”. Making babies tax deductible is a sexy policy.

If a UK household earns £70,000, they currently pay £15,500 in annual tax with an ATR of 22%. Applying the French principle would save the same family £9,000. Even in the US, Obama gave parents a $1,000 tax break per child in 2010. This would also benefit stay-at-home mums (or dads) who choose to look after their own children rather than to farm them out to strangers in order to boost GDP. Childcare policy in the UK is framed in terms of what is good for the economy rather than what is good for children and family life. Tax deductible children would please the squeezed middle-classes during tough economic times… who knows they might even vote for a party that puts it in the manifesto.

Some years ago the Taxpayers Alliance proposed a Family Transferable Allowance so anyone, of any age, would have a personal allowance they could set against Income Tax, or they would be able to transfer a share of that allowance to another member of the family. The share they could transfer would be determined by the OECD equivalence scale used to adjust household incomes for the differing needs of households of differing sizes (1.0 for the first household member; 0.5 for each additional adult member; and 0.3 for each child).

Based on a personal allowance of £12,000:

  • An adult could transfer up to 50% of their personal allowance.  At a personal allowance of £12,000, that would mean they could transfer up to £6,000 of personal allowance, worth £2,000 at the 30% tax rate on labour income
  • Each child could transfer up to 30% of their personal allowance. At a personal allowance of £12,000, that would mean they could transfer up to £3,600 of personal allowance, worth £960 at the 30% tax rate on labour income.

This seems complicated and ungenerous, Guido would simply advocate fully transferable tax allowances within the family…

UPDATE:  Ranil Jayawardena spoke in the Budget debate in favour of choice and tax relief for families.

Kit Malthouse had an article in The Times on same theme this morning:

If we are serious about supporting people to have children and get back into work, a major childcare overhaul is clearly the right place to start. Here is how we start.

We need to begin with the tax system. I have often wondered why we recognise children in the welfare system but not through our taxes. In that sense, they’re treated like a burden that needs offsetting rather than a cause for celebration and an economic bonus. To fix that, we could abolish child benefit and simply gave parents a tax-free income allowance of, say, £15,000 per child up to 11 years old. If you are a couple on £30,000 each with two children, for instance, this would mean that with your existing personal allowance, you could jointly earn £55,140 before you paid a penny to the government. …

So rather than collecting money from families in taxation, losing some of it in administration and then returning it to them as childcare, we could simply leave more of it in their pockets to do with as they see fit.

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